| How do you... | 9 items found |
How do you...
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Just how do you buy a house? The Home Loan Learning Center delivers information on the home buying process in two ways: through in-depth information on pages sorted by topic and in our step-by-step mortgage process guide that is provided in this section. Here you can view the process from beginning to end, referring to the more in-depth information on other pages as you need it. MBA has identified seven steps that make up the mortgage lending process. By reviewing them, you will know what to expect at each point in the process. | In addition to the seven steps, MBA has developed the Top 10 Tips for Home Buyers, a concise list that you can print out for reference if you like. Use it as a checklist as you're going through the process. It can help keep you on track as you move through the steps. All of the topics are also addressed in the topic-specific pages on this site. Once you finish going through this site and start to feel comfortable with the process, you will be ready to take the first step, finding a lender. To help you take that step, you will find the list of MBA members — experts in mortgage lending — in this section. Some are regional and others have nationwide operations. Take a look. After you read this site thoroughly, go to their Web sites and check them out. If you think you see a few that might work for you, give them a call. Ask some questions. Top 10 Tips for Home Buyers 1. Check your credit score. Get your credit history in order before beginning the home buying process. 2. Develop a monthly budget based on your income and expenses so that you can determine what is realistically affordable in terms of a mortgage payment. 3. See a lender first. Shop around — compare various mortgage lenders and find one that will work well with you and your situation. 4. Needs vs. Wants — what features do you need in a new home versus what you want? Don't make an emotional decision, make a financial one. 5. Take time to learn important terms and understand their meaning. 6. Once you've found a lender, thoroughly investigate the mechanics of the deal — are there additional costs, such as origination and/or application fees? 7. Learn about the various types of mortgage packages. Figure out, with your lender, what type of mortgage is best for you. 8. Get pre-qualified so you are aware of what you can afford as well as prepared to seriously consider real estate options. 9. Visit as many homes as possible and decide on the house you are interested in based on your approved loan amount. 10. Work interactively with a mortgage lender and be accessible to him/her in order to secure the loan.
Buy a Home
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Lots of people don’t consider buying a home because they think they can’t afford it. For many, however, homeownership is within reach—especially when considering the range of special programs for first-time home buyers. Often homeownership can be as affordable as renting—in some cases more affordable. | This section will take you through the home buying process step by step, providing explanations of what you will encounter along the way. More detailed information can be found on the pages covering specific topics. Get ready to become an educated home buyer. Step 1: Choose a Lender First Step 2: Find Out How Much You Can Afford Step 3: Understand Your Loan Options Step 4: What do you need or want in a home? Step 5: Submit the Loan Application Step 6: Closing Step 7: Being a Homeowner
Step 1: Choose a Lender First
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Begin the home buying process by contacting mortgage lenders in your area. Take advantage of MBA's easy-to-use lender search page or talk with people you know who have bought or refinanced a home recently and ask if they were pleased with the service. Check the newspaper’s real estate or business section or look in the yellow pages under “mortgages.” If you have a bank account, check with your bank or credit union since you already have a financial relationship with them. | Make appointments with as many mortgage loan officers as you wish (three is a good number) and ask to be pre-qualified for a loan. You will discuss your income and debts, savings, credit and employment. When comparing interest rates among lenders, remember that mortgages with the same interest rate can end up costing different amounts because of additional costs such as origination and application fees. See All About Interest Rates. While it's important to consider rates, you also want to make sure the person providing your loan is someone you feel good about. Remember, you’ll be working closely with your lender. Spending a little extra time at the beginning to find someone you’re comfortable with is well worth the effort. Don’t let rates be your only criterion. Get a feel for what it will be like to work with them, and how they approach your needs. If you’re still uncertain, ask for references—recent home buyers like yourself—and talk to them. At this point you are not filling out any paperwork—just having conversations. Ask to review the types of mortgages that are generally available through your lender. Many lenders offer a variety of loans. You should become familiar with the different products so you can find a mortgage that best suits your financial and lifestyle needs. See Mortgage Types.
Step 2: Find Out How Much You Can Afford
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Many financial factors apply when you consider owning a home. Here are a few questions to ask yourself and your lender. You can find the answers in several pages on this site. | 1. How much can I afford? How big of a mortgage may I qualify for? See Qualifying for a Mortgage. What would my monthly payments be? See our calculator. What do houses cost in the neighborhood where I want to live, and how would the payments compare to renting there? See Owning vs. Renting. What is my budget? Download a sample budget (MXL) or the same sample budget (PDF). 2. What types of assistance are available for me? Could I qualify for government assistance programs? What is Habitat for Humanity? See Special Programs. 3. What about repossessed homes? Would they be an option? See Step 4: What do you need or want in a home? 4. How is my credit? What is credit? How do I check my credit score? If it isn't so great, how can I improve it? Can I own a home while improving my credit? Will my credit affect the loan amount I'm eligible for? The interest rate? 5. What other money topics will lenders want to cover? See Qualifying for a Mortgage. Income and expenses Down payment Borrower history Closing cost Employment History
Step 3: Understand Your Loan Options
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Once you've found a lender and have set a realistic budget, you should start learning about the different types of loans. You will need to consider the pros and cons of different loans based on your needs. | Some loans may have higher rates but lower payments at the beginning; others carry lower rates but possibly higher payments. Some have steady payments, while others have payments that may go up or down. The key to understanding why loans behave this way is to understand "risk" and who is taking the most risk — you or the lender. Risk can refer to many things, but in general in mortgage lending it is two things: the risk of interest rates going up or down and the risk of the loan not being paid back. On the Mortgage Types page, you will find information about how loans can vary within the basic types, such as the differences in adjustable-rate loans. We hope these explanations can help you narrow down the type of loan you want and how you want that loan to be structured. Your lender is the best person to help you explore your options, but the choice is yours.
Step 4: What do you need or want in a home?
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When you're looking at many houses, it can be easy to forget which ones have which features. Many of them will have some of the features you need; some will have more than others. Before you begin looking, make a list of what you think you need and what you want. You may want to look through magazines and cut out pictures of homes, designs or décor that you like. | To track this, try keeping a notebook that puts all the information about your search in one place. You can use a three-ring binder filled with notebook paper, dividers and pocket inserts to hold papers and pictures. Each section can focus on a home, its features, and your notes on thoughts and feelings. Don't forget the camera. Here are some questions you may consider as you go through this process. Where do you want to live? This is a major consideration that’s based on your current or desired lifestyle, as well as what you can afford. Do you want to be in the city or on the outskirts in a suburban area? Do you want to live in a rural area away from the hustle and bustle, or do you want to be close to museums, schools, restaurants, and activities? How far away is the neighborhood from your workplace or schools? What is the transportation system like? What will your commute be? Get a map of the area. If you can, drive through neighborhoods and take pictures of homes you like, making notes of neighborhoods and areas you find appealing. If you're looking in an area where you currently live, try taking different routes home from work to widen your search. What type of home do you want? Do you want a single-family home – such as a ranch, split-level, contemporary, log cabin or colonial – or a townhouse or condo? Do you need one bedroom or five? Do you want stairs? Do you need a garage? Townhouses Maybe you don't want the responsibility of extensive property maintenance. A townhouse may be a good choice. While you may pay homeowner association fees, management companies generally take care of most groundskeeping and other property maintenance. Pros Amenities, such as a pool, parks, and clubhouse are often available Small yard area, few responsibilities for exterior upkeep Neighbors close by, feeling of security and community Can be less expensive than a single-family home depending on the area Cons Homeowner association fees and rules Less privacy Parking may be limited Condos Maybe you don't want the responsibility of any property maintenance. A condo may be a good choice. While you will pay condo owner association fees, you will have very few if any exterior responsibilities. Pros Amenities, such as a pool, parks, fitness facilities, and security are often available Located in urban areas, close to public transportation Can be more affordable than a single-family home or townhouse Cons Homeowner association fees and rules Less privacy, neighbors above, below, and beside you Possible parking issues Note: Townhomes typically have two to three levels, while condominiums generally are "flat" — a single level in a large building.
Step 5: Submit the Loan Application
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It may seem as though applying for your mortgage is the most complicated financial task you will undertake. Lenders ask many questions about you and your finances because they want to help you attain a home you can afford. If you know what to expect and what your lender is looking for, you’ll find applying for a mortgage isn’t so bad. It can be time-consuming, but there’s no reason for it to be difficult. This section will help you learn the steps. | Understanding prequalification vs. pre-approval Usually, some type of prequalification is done in the first interview with a lender. Here you will provide basic information needed to help you obtain a loan. The lender makes preliminary calculations based on information you give about your income, debts, and assets. These calculations help determine whether you can afford the loan you would like or how much you can afford to borrow. The lender may also explain the application process and steps to getting a mortgage at that company. Prequalification occurs before the formal application is signed and submitted. At this time, lenders do not verify the information you give them, and they may not check your credit. Lenders are not committed to make a loan for you at this time. Prequalification is just an estimate of the amount you may qualify to borrow. You can use this preliminary information to assess the impact a particular monthly payment may have on your total budget. In a pre-approval, lenders do check the accuracy of the information provided. They may contact the employer to verify employment dates and income and check your credit. If the information checks out and your credit is good, the lender will give you a pre-approval letter for a specific loan amount. You can be pre-approved by more than one lender. At this point, you are on the way to buying a home. The pre-approval letter shows the real estate professional and home sellers that you are serious about buying a home, that your credit is good, and that you are working with a lender or lenders who will provide you with a loan. The pre-approval is specific to each lender but can be helpful in shopping with other lenders. Finding the house you want The more homes you see, the better your chance of finding the home you really want. Visit as many homes as possible, and try to be organized (see Step 4). Plan your visits by neighborhood. If you find a home or area you like, visit it at different times of the day. You may be surprised how your feelings about it may change. If you’re working with a real estate professional, make sure that person understands your needs. Clearly state what you want in a home and why, and what you can afford. Do you think that person is listening to you? You’ll know soon enough. Don’t be afraid to shop around by interviewing several real estate professionals. Making an offer to buy a house When you have found a home you want to buy, the first step is to make a formal offer. Two things happen: You sign a sales contract and pay what is called "earnest money," or a deposit. This deposit can range from $100 to 10 percent of the purchase price and more in some areas. Usually, the deposit is applied to your closing costs. The deposit and signed sales contract indicate your serious intention to buy the house. You may want to make your contract contingent on A satisfactory property inspection Final loan approval Passing lead paint and termite inspections A note on contingencies: Some housing markets are so “hot” that some home sellers may not accept contingencies. You must proceed carefully in such cases. Completing the loan application and other documents There is a lot to do, but when you break it into parts, it gets easier. Basically, you need to supply information about who you are, where you work, your finances and the house you’re buying. Download a sample application form (PDF), and use this checklist of items you will need: Photo I.D. Last two pay stubs Proof of other income Last two tax returns Employment history (two years), including addresses and contact information Previous lenders or landlords (past two years) Your monthly household budget (for your reference) All debts All savings Other assets (life insurance, property, etc.) Source of downpayment Start with personal information. Lenders will require proof of identity (picture ID, driver’s license, passport, Green Card, etc.) as well as your Social Security number, age, number of years of school, marital status, number and age of dependents, and your address and telephone number. (If you lived elsewhere in the past two years, be ready to provide those addresses, too.) Get your employment information together. List for the past two years your employer’s name, address and telephone number; your job title or position; how long you held the job; and all your other financial information (including salary, bonuses, commissions and average overtime pay). You may be asked to sign a form that will be sent to your employer (and previous employers if you’ve held your current job less than two years) to verify this information. Provide all your W-2 forms for the past two years and your two most recent pay stubs. (Some lenders may want to see your entire tax return for the past two years.) If you are self-employed, be prepared to provide complete tax returns for the past two years along with a profit-and-loss statement for the current year. Don’t forget proof of other sources of income such as rental income, Social Security or disability payments, alimony, child support, etc. Proof of these could be canceled checks, copies of leases, divorce decrees, certification of benefits or other documents. Finally, if there are any gaps in your employment over the past two years for whatever reasons (illness, layoff, etc.), provide a brief written explanation. Review money coming in, money going out, and savings. There’s a lot more to your finances than pay stubs. You need to present a complete picture of your assets and liabilities. Having a sound budget makes every step easier. Know your ongoing expenses. You’ll be asked for your current rent or mortgage payments, real estate taxes and homeowners insurance, and the name(s) and address(es) of your landlord(s) or mortgage lender(s) for the past two years. Make an itemized list of your current debt. Include automobile loans; bank and credit union loans; any existing mortgages or home equity loans; and outstanding balances on credit cards. Debts also include alimony, child support or maintenance payments you’re required to make.
Step 6: Closing
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The closing is the last step in getting your mortgage and actually becoming the owner of your new home. You’ll probably see and sign more legal documents at your closing than at any other event in your life. You’ll have to pay a number of fees as well. These factors can make your closing confusing and a little overwhelming. | Closing (or settlement) is the legal process of transferring ownership of a home from one person to another, and generally the purchaser receives a loan to finance the home purchase. Closing involves decisions that can save you money — or cost you money. Two issues can make closing seem complicated — the number of documents and the costs involved. The event There are two types of closings. One type brings all the parties together at a closing table. The other allows the parties to execute the documents separately through an escrow process. For purposes of illustration, we'll focus on the type where all the parties assemble together. In most cases, closing is conducted by a "closing agent." This person may work for the lender or the title company or may be an attorney representing you or your lender. He or she knows what documents need to be reviewed and will have collected all the necessary paperwork from you, the seller and the lender. Several things happen here: Terms of the agreement between you and your mortgage lender are confirmed Your loan goes into effect and you receive your mortgage What you and the seller agreed to in the sales contract is confirmed Ownership of the home is transferred Each of these steps normally involves several legal documents, each with costs for research and preparation. That’s why there’s so much to review, sign and pay for at the closing and why some states require you to have an attorney present. Who attends This can vary, but the closing agent and you — or someone representing you — are always present. The seller, or someone representing him or her, is usually present, too, and real estate professionals for you and the seller may or may not attend. A representative of the lender also may attend. The closing agent makes sure everything is signed and recorded and that the funds collected for various fees and expenses are properly disbursed. The agent will explain each document and give you and your attorney (if in attendance) the chance to look at them. There are a lot of documents. Scheduling your closing As soon as you receive final loan approval, you should confirm the time and date of settlement (an estimated date may be in your sales contract) with the seller and the lender. Usually, the real estate agents representing you and the seller are in the best position to coordinate the closing. If you are scheduling your closing yourself, keep the following points in mind: Allow enough time to complete all required documents Allow time for any required repairs or maintenance on the house to be completed Schedule before your loan commitment expires Schedule before any rate lock agreement on your loan expires. Just before the scheduled closing—within 24 hours— plan time to make a final inspection of your new home with your real estate professional, ensuring that no recent damage has occurred and that the seller has honored all repair agreements What you need to bring to closing The closing agent will generally be responsible for preparing or ordering all the documents for your closing. However, you are responsible for the following, which you must bring to your closing: Your new homeowner’s insurance policy and any other required insurance policies you’ve taken out, along with proof of payment. In most cases the lender will require a review of the homeowner’s insurance policy and proof of payment prior to scheduling the closing. A certified check for all closing costs, including the remaining portion of your downpayment. You can get this figure a day or two before your closing from your closing agent. You are entitled to a copy of the HUD-1 Settlement Statement a minimum of 24 hours prior to the closing of the loan. This statement itemizes the services provided and fees charged to you. These fees should be negotiated prior to the closing.
Step 7: Being a Homeowner
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Receiving the keys is just the first step in owning a home. When you sign the closing statement, you take on responsibilities that may be new to you. Taking care of your home properly will help retain and even increase its value, and caring for a home is part of the pride of homeownership. | Basic home maintenance tips At closing or before, ask for all the warranties and operating manuals for your home's materials and appliances. Home warranty plans, covering all heating, air, plumbing and electrical systems as well as appliances, are usually available at the time of purchase—check with your lender for more information. Here are some other topics that are key: Change heating and air conditioning filters at least once a month. You may want to invest in good quality filters that last longer. In the spring have your air conditioning unit professionally serviced; in the fall, do the same for your heating unit. Have your water heater professionally cleaned at least once a year. Check your roof for leaks and clean gutters once a month. Call a plumber once a year to check your faucets and toilets. Change the batteries of your smoke detector(s) and carbon monoxide detector(s) twice a year. Enrolling in a home maintenance workshop at a local hardware store can give you the confidence to make your own repairs or improvements. These classes can be very instructive, and stores may offer discount cards or coupons on purchases. Maintenance costs The expenses of owning a home go beyond the monthly mortgage and utility payments and can create financial difficulties, particularly for first-time home buyers who have minimal savings. Mechanical failures in the plumbing, electrical and heating systems seem to occur at the worst possible times but have to be repaired. If you bought a home that was just built, your immediate expenses may be for landscaping, interior decoration and furnishings. Under normal conditions, mechanical items and appliances will be under warranty for six months to a year and will not require a large amount of money but may need minor repairs. In an older home, replacement of major items can be very expensive. You should know the age of the furnace, hot water heater, air conditioning system, kitchen appliances and roof. Your home inspector’s report should note the ages of these major items. If they are older than half their expected useful life, you will need to plan for the costs of replacement. If you did not set up a budget for these expenses before you purchased the home, you should begin to accumulate reserves to deal with these emergencies as soon as possible. If you need help protecting your home from the weather, check with local government agencies. Some offer financial assistance programs that pay for maintenance expenses. Hazards Many hazards can develop in your home that may cause harm or loss. Although homeowners insurance is there to help, prevention is your best insurance against these types of risks. The U.S. Consumer Product Safety Commission (CPSC) provides information and tools to protect the public from risks of serious injury or death from consumer products under the agency's jurisdiction. The CPSC helps to protect consumers and families from products that pose a fire, electrical, chemical, or mechanical hazard or can injure children. The Web site is http://www.cpsc.gov. | |||||||||||||||||||||||||||||||||||||||
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